Quotulatiousness

April 25, 2012

Identifying the potential profits from asteroid mining

Filed under: Economics, Space — Tags: , — Nicholas @ 09:06

In his Forbes column, Tim Worstall spins a tale that is worthy of Dr. Evil or other movie bad guy multi-billionaires:

We’ve now had the announcement of the business plans of Planetary Resources. Enough to excite everyone who read Heinlein or Jerry Pournelle as a teenager. But the big problem is how might they actually turn a proft? To which the answer is manipulation of the futures markets.

[. . .]

So, imagine that they have reached one of the nickel iron asteroids, it is high in the platinum group metals, they can mine it and they can deliver those pgms to Earth. The moment everyone knows that there is some hundreds of tonnes of these metals on the way down the price will collapse. The answer? Sell the metals in advance, through the futures markets. Get today’s price for delivery in the future.

In fact, sell many more futures than the amount of metal which is to be delivered: go short. As an example, say platinum is $2,000 an ounce (not far off the real price, $62 million a tonne). Planetary Resources is going to deliver 100 tonnes. But instead of selling $6 billion’s worth of platinum for delivery in three months, sell 10 times as much: $60 billion’s worth*. When that 100 tonnes splashes down, in fact when the market knows that the 100 tonnes is likely to splash down, then the market price will fall. Substantially but for illustration we’ll say to $200 an ounce.

The company then delivers that 100 tonnes for which it is paid the $6 billion agreed on those futures deliveries. It still owes the market another 900 tonnes but it can now cover its short at $200 an ounce having sold the futures at $2,000 an ounce. Use the $6 billion that’s going to be incoming to do so and what do we have at the end?

The company has $60 billion incoming from having sold futures. It has delivered 100 tonnes at $6 billion and covered the short for that $6 billion. Net profit $54 billion minus the cost of the space program. Which is pretty good really.

But it gets better … and more Bond-villainous.

April 22, 2012

Earth Day: 42 years of crying “wolf”

Filed under: Economics, Environment, Health, Media, Politics — Tags: , , , , , — Nicholas @ 00:09

Peter Foster piles on the scorn for the 42nd anniversary of Earth Day:

For more than 40 years, Earth Day has both reflected genuine environmental concern and mirrored the UN’s attempted eco power grab. Sunday’s Earth Day comes two months ahead of the vast, but significantly brief, UN Rio+20 conference. Both are pale reflections of their original radical aspirations. Earth Day is still celebrated, but 42 years of crying wolf have inevitably had an effect. The event has also been corporatized, greenwashed and taken over by such announcements as that of the “50 sexiest environmentalists.” Rio+20 will represent the graveyard of aspirations for all prospective — and inevitably less sexy — Captains of Spaceship Earth, Global Saviours, and High Priests of Gaia.

That Earth Day has gone Happy Face, and Rio+20 will be a farce, reflects the fact that their apocalyptic assumptions have turned out to be so wrong. In Canada, as in other developed countries, we can celebrate significant improvements in air quality, and success in coping with industrial impacts on water. The Great Lakes have been cleaned up, forest cover has been maintained, and the amount of “protected” land doubled. The use of toxic chemicals in industrial production has been slashed. Some credit must obviously go to activism, but the more radical end of the movement has always had a lot more than just the environment in mind.

[. . .]

That misunderstandings and misrepresentations were at the root of radical environmental thinking was exemplifed by an “equation-of-doom” hatched in the 1970s by two prominent radicals, Paul Ehrlich and John Holdren (President Obama’s current senior science and technology advisor). The equation was I=P x A x T: Human Impact (I) equals Population (P) times Affluence (A) times Technology (T). The formula was vague, but it clearly suggested that population, wealth and technology were all “bad” for Mother Earth.

Such thinking was based on a primitive, static, zero-sum view of economic development and a demonization of business. Since resources were “finite,” all development was claimed by definition to be “unsustainable.” Advancing technology merely chewed up resources faster and accelerated us down the road to exhaustion. All this came with biblical overtones. On the first Earth Day, Prof. Ehrlich thundered that “In ten years all important animal life in the sea will be extinct. Large areas of coastline will have to be evacuated because of the stench of dead fish.”

April 21, 2012

Argentina: Canada without the boring politics and grey politicians

Filed under: Americas, Cancon, Economics, Politics — Tags: , , , — Nicholas @ 09:58

Robert Fulford sees lots of similarities between Argentina and Canada, except the one difference that makes all the difference:

In some ways it’s much like Canada, a huge one-time colony with a talented population and endless natural resources — arable land, oil and gas and much else.

Except it is not like Canada. It doesn’t work. And the reason it doesn’t work is that it lacks a reliable, careful government, not subject to sudden bouts of hysteria. Argentina has few of the boring politicians who irritate people like Sid.

Public life in Argentina expresses itself through spasms of showmanship, braggadocio, paranoia and demagoguery. It’s the land of the eternal crisis, where a military coup is never unthinkable.

Argentina’s many economic failures, generation after generation, are self-created, politically induced. In all the world there’s no more obvious example of a nation that has squandered, through flawed governance, the riches provided by nature.

This week Cristina Fernández de Kirchner, President of Argentina, and the widow of the last president, announced she’s grabbing YPF, the country’s biggest energy company, taking it from Spain’s Repsol. Cristina, as she’s usually called in Argentina, thinks she can run YPF better than the Spanish. Of course the Spanish are furious and will sue as well as blacken Argentina’s name wherever possible. What Cristina has announced is a brazen, heedless act, with nothing to recommend it but high-handed nationalist fury.

Yet Cristina believes that when you encounter economic trouble, the best course is to strike out against something foreign. At the moment she’s also making anti-British noises, agitating to annex the Falklands Islands, which Argentina seized in 1982 and had to give back when it lost the war with the U.K. Somehow the Falklands (called the Malvinas in Argentina) are linked with the oil-company seizure as nationalist issues. A T-shirt has appeared on Cristina’s supporters: “The Malvinas are Argentine, so is YPF.”

April 20, 2012

The stadium issue for the Minnesota Vikings

Filed under: Economics, Football, Government — Tags: , , , , — Nicholas @ 08:40

It’s been a big issue in Minnesota for the entire off-season, but I haven’t been following too closely (not living in the state, I don’t know anything about the issue other than what the StarTribune and the Pioneer Press have been reporting, leavened with some angst and bile from the various Viking fan blogs).

In a nutshell, the Vikings have been playing at the Hubert H. Humphrey Metrodome in Minneapolis for 30 years. Their lease on the building expired at the end of the 2011 season and they’ve been trying to get political support for a new stadium for the last ten years. The stadium debate has gone over the same ground repeatedly, but even when the site is agreed upon and the team and the city appear to be happy with the compromise, it still required the state to provide additional funding … lots of additional funding.

That’s where what appeared to be a done deal went off the rails earlier this week. The state legislature voted down the state’s share of the funding for the stadium, which appears to have been a rude surprise to both Minneapolis and the team.

The NFL is now warning Minnesota that the Vikings could move out of state (Los Angeles has been hoping for a team for years now, although given California’s dire financial straits, it’s hard to imagine them putting up any more money than Minnesota might be willing to offer).

As I wrote back in November,

The Vikings are hoping to get a new stadium built, and the state legislature has been doing what they can to kick the issue down the road every time it’s come up. I don’t have a say in the matter, as I’m not located in Minnesota and I’d probably still cheer for the team even if it moved elsewhere (though it would be a sad thing to see it move after half a century in Minnesota).

In general, I don’t think governments should build stadiums for professional sports teams, as it’s using tax money to subsidize private profits. If a new stadium is going to generate a profit, the team’s ownership should bear the costs themselves. The fact that they generally don’t — mostly because politicians don’t want to deal with angry sports fans after the team leaves town — doesn’t make it right.

It is quite noteworthy that the question has never actually been asked of the voters — the folks whose taxes will have to subsidize the team’s new stadium — if they are willing to pay. I have to assume that this is because they have indicated in other ways that they are not willing. If that’s the case (and I can’t blame them in the slightest if that’s true), then the Vikings should either pony up enough money to build a stadium without taxpayer assistance, or go looking for a city or a state foolish enough to pour more money into the pockets of the team’s ownership. Here once again are Nick Gillespie and Matt Welch on why public funding for professional sports facilities are a bad idea:

Building High Speed Rail won’t do much to cut carbon dioxide emissions

Filed under: Economics, Environment, Technology — Tags: , , , — Nicholas @ 08:11

Brad Plumer at the Washington Post on the latest straw that high speed rail enthusiasts have been grabbing to justify their expensive toys:

… Brown’s administration has proposed using money raised by California’s new climate law. Under the state’s cap-and-trade system for carbon emissions, power plants and factories will have to buy permits to pollute. Brown has suggested diverting this money into high-speed rail. But there are two problems here. For one, this might be illegal, as the state’s Legislative Analyst’s Office concluded on Tuesday. But second — and more broadly — high-speed rail turns out not to be the most effective use of money that’s meant to combat global warming.

Paul Druce at Reason & Rail offered up a few numbers on this topic last year. The California High Speed Rail Authority claims that by 2030, if the train ran entirely on renewable energy, then it would reduce the state’s carbon emissions by about 5.4 million metric tons a year. If you ignore all the energy used to build the system, that means the rail network would reduce California’s emissions at a cost of $12,506 per metric ton of carbon dioxide.

That’s a pricey way to cut carbon. To put this in perspective, research has suggested that you could plant 100 million acres of trees and reforest the United States for a cost of about $21 to $91 per ton of carbon dioxide. Alternatively, a study by Dan Kammen of UC Berkeley found that it would cost somewhere between $59 and $87 per ton of carbon dioxide to phase out coal power in the Western United States and replace it with solar, wind and geothermal. If reducing greenhouse gases is your goal, then there are much more cost-effective ways to do it than building a bullet train.

Zoning: what it is and why it fails

Filed under: Bureaucracy, Economics, Education, Government, Law, USA — Tags: , , , — Nicholas @ 08:05

Jonathan Rothwell in The New Republic on the palpable failure of zoning:

While most political economists think of institutions operating at the national or even state level, there is one essential but overlooked institution operating at and within the metro scale: zoning.

In a new report I argue that its impacts are destructive. Zoning laws are keeping poor children out of high-scoring schools, degrading education, and weakening economic opportunity.

Anti-density zoning — embodied in lot-size and density regulations — is an extractive institution par excellence. Through the political power of affluent homeowners and their zoning boards, it restricts private property rights — the civic privilege to freely buy, sell, or develop property — for narrow non-public gains. Property owners in a jurisdiction benefit from zoning through higher home prices (because supply is artificially low) and lower tax rates (because population density is kept down, as school age children are kept out), while everyone else loses.

[. . .]

Dragging down the quality of education available to poor children is not only unjust, it hobbles national economic gains and therefore harms even affluent people. Young black and Latino adults earn thousands of dollars more each year, and are far more likely to obtain a college education, if they grow up in metro areas where blacks or Latinos attend high-scoring schools — like in Raleigh or San Jose — compared to their counterparts in metro areas with low-scoring schools — as in Philadelphia or New Haven. Impressive research from Raj Chetty and other economists has also found that the quality of one’s school environment — measured by teacher or peer performance — causes large long term gains in earnings and labor market performance.

Previously, my work has found that zoning laws inflate metro-wide housing costs, limit housing supply, and exacerbate segregation by income and race. Other work faults these laws for their damaging effect on the environment, since they make public transportation infeasible and extend commuting times. With a few possible exceptions (see Michelle Alexander), it’s hard to think of an existing political institution in the United States that is more destructive of human and social capital.

April 19, 2012

“Ontario is on track to have the highest electricity prices … in North America”

Filed under: Cancon, Economics, Environment, Government, Technology — Tags: , , , — Nicholas @ 10:08

Scott Stinson explains why Ontario consumers are facing huge price hikes for electricity over the next 18 months:

It’s no secret that Dalton McGuinty’s Liberals have placed a huge bet on growing a green-energy sector by subsidizing the production of renewable energy. Although energy bills have been steadily rising since the party took power in 2003 — the average cost of a kilowatt of electricity was more than 30% higher last year than it was five years ago — the Liberals have somewhat masked this fact by handing a 10% rebate back to consumers with the euphemistically named Clean Energy Benefit, which also happens to utterly contradict the conservation incentive that should be part of a switch to a greener grid.

Electricity costs, though, are set to spike.

“Ontario’s power system is fuelled by consumers to the tune of about $16-billion a year,” says Tom Adams, an energy consultant who has written extensively on electricity and environmental issues. “That number is headed for $23-billion or $24-billion soon, by 2016,” he says in an interview.

[. . .]

Mr. Adams notes that when the Green Energy Act, with its guarantees of above-market rates for wind and solar electricity known as feed-in-tariffs (FIT), was introduced in 2009, the Liberals said electricity costs would only be impacted by about 1% annually. We now know that rates for consumers are rising by 9% a year. “The government says about half of that is due to Green Energy, but if they were being honest it would be more than that,” Mr. Adams says.

The coming increases, meanwhile, which can partly be attributed to locked-in contracts for renewable energy, are also a result of a host of other factors, from new generation capacity being introduced to phase-out costs of existing facilities to new transmission capacity being added to the energy grid.

The Limits to Growth scorecard, 40 years on

Filed under: Books, Economics, Environment, Food, History, Media — Tags: , , , — Nicholas @ 08:00

Ronald Bailey tots up the hits and misses from that 1972 dystopia manual, The Limits to Growth:

Industrial development: World GDP stood in real 2010 dollars at about $19 trillion in 1972 and has tripled to $57 trillion today. Average per capita incomes rose in real dollars from $5,000 to $8,100 today. Just to explore how incomes might evolve between 1972 and 2000, the researchers simply extrapolated the current growth, investment, and population growth rates to calculate GDP per capita for 10 large countries. They stressed these were not “predictions” but added that if one disagreed then one was obligated to specify which factors changed, when and why. A comparison of their extrapolations with actual GDP per capita (in 2010 dollars) finds U.S. GDP per capita $56,000 versus actual $44,000; Japan’s per capita GDP was projected to be $120,000 versus actual $46,000; the now defunct USSR would be $33,000 versus Russia’s $2,200; and China’s per capita income was supposed to grow to $500, but was instead $1,200.

Population: The Limits researchers noted, “Unless there is a sharp rise in mortality, which mankind will strive mightily to avoid, we can look forward to a world population of around 7 billion persons in 30 more years.” In addition, they suggested that in 60 years there would be “four people in the world for everyone living today.” In fact, average global life expectancy rose from 60 to nearly 70 years. On the other hand, the global fertility rate (the average number of children a woman has during her lifetime) fell from about 6 per woman in 1970 to 2.8 today and continues to fall.

[. . .]

Food supplies: According to the data from the Food and Agriculture Organization, global food production has more than tripled since 1961, while world population has increased from 3 billion to 7 billion. This means that per capita food has increased by more than a third. The latest figures from the United Nations show that as world population increased by a bit over 10 percent between 2000 and 2009, global food production rose by 21 percent.

[. . .]

Nonrenewable resources: Probably the most notorious projections from the MIT computer model involved the future of nonrenewable resources. The researchers warned: “Given present resource consumption rates and the projected increase in these rates, the great majority of currently nonrenewable resources will be extremely expensive 100 years from now.” To emphasize the point they pointed out that “those resources with the shortest static reserve indices have already begun to increase.” For example, they noted that the price of mercury had increased 500 percent in the last 20 years and the price of lead was up 300 percent over the past 30 years. The advent of the “oil crises” of the 1970s lent some credibility to these projections.

To highlight how dire the situation with nonrenewable resources was, the MIT researchers calculated how quickly exponential consumption could deplete known reserves of various minerals and fossil fuels. Even if global consumption rates didn’t increase at all, the MIT modelers calculated 40 years ago that known world copper reserves would be entirely depleted in 36 years, lead in 26 years, mercury in 13 years, natural gas in 38 years, petroleum in 31 years, silver in 16 years, tin in 17 years, tungsten in 40 years, and zinc in 23 years. In other words, most of these nonrenewable resources would be entirely used up before the end of the 20th century.

[. . .]

Environment: In most of the Limits model runs, the ultimate factor that does humanity in is pollution. In their model pollution directly increases human death rates and also dramatically reduces food production. In fact, as the world economy has grown, global average life expectancy has increased from 52 years in 1960 to 70 years now. It must be acknowledged that globally, pollution from industrial and agricultural production continues to rise. But the model assumed that pollution would increase at exponential rates. However, many pollution trends have not increased exponentially in advanced countries.

Consider that since 1970, the U.S. economy has grown by 200 percent, yet the levels of air pollutants regulated by the federal government have fallen by nearly 60 percent. For example, in both the U.S. and the European Union sulfur dioxide emissions have dropped by nearly 70 percent since 1990. Recent data suggests that sulfur dioxide emissions even from rapidly industrializing China peaked in 2006 and have begun declining. Earlier studies cite evidence for a pollution turning point income threshold (purchasing power parity) of around $10,000 for demands to reduce this form of air pollution.

April 17, 2012

Argentina’s latest economic lesson

Filed under: Americas, Economics — Tags: , , , , , — Nicholas @ 10:50

Jan Boucek explains why Argentina is providing a helpful example to other countries on what not to do in economic policy:

This week, President Cristina Fernandez de Kirchner announced the seizure of Spanish oil company Repsol’s stake in Argentine oil company YPF to give the government 51% control. Spain is outraged and has recalled its ambassador. […]

Ms Fernandez justified her move on the grounds that YPF has failed to invest sufficiently to prevent Argentina from importing ever greater quantities of fuel. The fact that Argentine oil reserves have been dwindling means the sector needs greater and increasingly sophisticated investment to reach more complex structures, just like in the North Sea. Expropriation isn’t going to attract that kind of high-risk investment.

[. . .]

The YPF seizure continues Argentina’s cavalier attitude towards other people’s money shown back in 2008 when Ms Fernandez grabbed some $24 billion of private pension funds and used central bank reserves to meet debt payments. More recently, the country has been in a spat with the IMF over the quality of its statistics. Argentina claims inflation is running at somewhere between 5% and 11% but private independent estimates put the number at somewhere around 25%. The Economist is refusing to publish official Argentine inflation data.

Update: Well, regardless of the state of the economy, President Fernandez de Kirchner has a friend in the White House! President Obama has indicated his support for the Argentinian claim to … the ¿Maldives?

President Obama erred during a speech at the Summit of the Americas in Cartagena, Colombia, when attempting to call the disputed archipelago by its Spanish name.

Instead of saying Malvinas, however, Mr Obama referred to the islands as the Maldives, a group of 26 atolls off that lie off the South coast of India.

The Maldives were a British protectorate from 1887 to 1965 and the site of a UK airbase for nearly 20 years.

April 16, 2012

“This sort of investment pays for itself ten-fold over a very short period of time”

Filed under: Economics, Government, Technology, USA — Tags: , , , , , — Nicholas @ 10:16

You see? This is what’s wrong with private enterprise, especially in California. Those wimps aren’t willing to invest in something that will “pay for itself” ten times over in a “very short period of time”. That’s why all the greatest economic advances have come from over-aged students, business council speechifiers, bureaucrats, and career apparatchiks!

If you believe calling your opponents names is a sign that you have lost the argument, then this new high-speed rail commercial from the California Alliance for Jobs — in which unexpectedly macho proponents of the $41 billion, $110 billion, $98.5 billion, $68.4 billion high-speed rail project deride skeptics as “wimps” — is pretty much the end of the line […]

What reveals the intellectual bankruptcy of the high-speed rail project is not the insults but that what is supposed to be a rousing propaganda piece comes off like an orientation video for new hires at a failing company.

The video’s cast includes hacks respected citizens from Operating Engineers Local 3, including Alliance for Jobs Executive Director Jim Earp, along with leaders from what’s usually referred to as the “business community” whose skill sets cluster around serving on business councils rather than doing any actual business. There’s also a career apparatchik and the founder of the “I Will Ride” Student Coalition, who is apparently a UC Merced senior but looks at least a decade too old.

[. . .]

Again, why not just claim the Fresno-Bakersfield line will end up carrying 38 million people, the entire population of California, every day? It would be no less accurate than the current claims, which have been made with no data on ticket costs, no comparative studies of existing bullet-train ridership, or anything else that can reasonably pass for due diligence.

Oh, and nobody actually knows where the bullet train will go to or from. (Past, present and possibly future candidates include Corcoran, Borden, Fresno, Anaheim, Los Angeles, San Francisco, and some guy named Dave’s rec room.) You wouldn’t build a patio with the amount of planning that’s gone into the high-speed rail project.

To put the headline into a bit of perspective, note that only one high speed rail line in the world is profitable. This is an old hobby horse of mine and I’ve posted about High Speed Railways a few times before.

Update: And to answer the question about why parts of Europe, Japan, and China have high speed rail systems and neither Canada nor the United States do, here’s a brief overview I wrote last year:

The best place to build a high speed rail system for the US would be the Boston-New York-Washington corridor (aka “Bosnywash”, for the assumed urban agglomeration that would occur as the cities reach toward one another). It has the necessary population density to potentially turn an HSR system into a practical, possibly even profitable, part of the transportation solution. The problem is that without an enormous eminent domain land-grab to cheat every land-owner of the fair value of their property, it just can’t be done. Buying enough contiguous sections of land to connect these cities would be so expensive that scrapping and replacing the entire navy every year would be a bargain in comparison.

The American railway system is built around freight: passenger traffic is a tiny sliver of the whole picture. Ordinary passenger trains cause traffic and scheduling difficulties because they travel at higher speeds, but require more frequent stops than freight trains, and their schedules have to be adjusted to passenger needs (passenger traffic peaks early to mid-morning and early to mid-evening). The frequency of passenger trains can “crowd out” the freight traffic the railway actually earns money on.

Most railway companies prefer to avoid having the complications of carrying passengers at all — that’s why Amtrak (and VIA Rail in Canada) was set up in the first place, to take the burden of money-losing passenger services off the shoulders of deeply indebted railways. Even after the new entity lopped off huge numbers of passenger trains from its schedule, it couldn’t turn a profit on the scaled-down services it was offering.

Ordinary passenger trains can, at a stretch, share rail with freight traffic, but high speed trains cannot. At higher speeds, the actual construction of the track has to change to deal with the physical problem of safely guiding the fast passenger trains along the rail. Signalling must also change to suit the far-higher speeds — and the matching far-longer safe braking distances. High speed rail lines cannot be interrupted with grade crossings, for the safety of passengers and bystanders, so additional bridges and tunnels must be built to avoid bringing road vehicles and pedestrians too close to the trains.

In other words, a high speed railway line is far from being just a faster version of what we already have: it would have to be built separately, to much higher standards of construction.

Getting back to the California HSR line; it goes from A to B on this map:

Okay, you think, at least Fresno will get some snazzy slick rail service . . . except this section will be built but not operated until further connecting sections are built . . . at a later date. Maybe. It will be the track, including elevated sections through Fresno, and the physical right-of-way, but no electrical system to power the trains; but that’s fine, because the budget doesn’t include any actual trains.

Stephen Harper’s “world view is based on the premise that the United States is in relative decline as a superpower”

Filed under: Cancon, Economics, USA — Tags: , , , , — Nicholas @ 09:39

Eugene Lang has an interesting view of how Stephen Harper has changed since coming to power and how this is reflected in Canada’s foreign policies:

Stephen Harper became Prime Minister six years ago with little interest in or experience of international affairs. He was a domestic policy wonk — particularly interested in economic and fiscal affairs. Yet, in about half a decade, he has fashioned the clearest Canadian foreign policy posture in at least a generation, whether you like that posture or not. We can now speak of a Harper Doctrine which forms the cornerstone of our foreign relations.

In a largely ignored interview with Maclean’s magazine last summer, the Prime Minster stated: “We also know, though, the world is becoming more complex, and the ability of our most important allies, and most importantly the United States, to single-handedly shape outcomes and protect our interests, has been diminishing, and so I’m saying we have to be prepared to contribute more, and that is what this government’s been doing.”

These remarks are an important insight into the Prime Minister’s perception of the changes in America’s geopolitical position, and how Canada should respond. They suggest his world view is based on the premise that the United States is in relative decline as a superpower, and that Canada must step up to the plate to help our distressed ally police the world. It is a striking acknowledgement. And it was not just words.

Canada has been needing to diversify its trading relationships to reduce its dependence on, and exposure to, the vagaries of the US economy and the meddling of the US government. President Obama’s recent decision to veto the Keystone XL pipeline is merely the latest spur to get Canada to work more closely with China and other growing economies rather than be subject to presidential whim in our dealings with the US.

During his first half-decade in office Stephen Harper was putting most of Canada’s economic eggs in the American basket, as had his predecessors — from Brian Mulroney to Jean Chrétien to Paul Martin. The Prime Minister was accused of willfully ignoring unprecedented economic opportunities in China.

But that is a thing of the past. Over the last year, the Harper government has embarked on the most ambitious trade and economic diversification agenda in memory. Ottawa is now pursuing free trade agreements with India and the European Union simultaneously. The government has done a 180 on Chinese trade and investment, actively and aggressively pursing both. Canada is trying hard to become a member of the Trans Pacific Partnership, a multi-lateral free trade agreement centred in Asia. And now Canada has begun free trade negotiations with Japan, the world’s third largest economy. Little of this was on Ottawa’s radar screen 18 months ago.

It’s my opinion that the US economy is being held back at least in part because of fears of what the federal government may do — instead of smoothing the worries of business, the government is stoking them and adding to the uncertainties that make business decision-making less bold. The more regulatory changes the government makes (or even hints that it might make), the less investment will be made in areas that might be affected by those changes. The current presidential election campaign with its naked fanning of class warfare isn’t helping the situation either.

Since the global financial crisis, the evidence has mounted that the United States is in economic decline. Its system of government seems congenitally incapable of coming to grips with America’s fiscal crisis. For the first time in living memory, the U.S. recovery from recession has been weaker than Canada’s. The United States continues to have a higher unemployment rate than Canada, virtually unheard of historically. The American economy is amazingly resilient and might yet come back strong, but right now the evidence suggests a long period of relative economic stagnation south of the border. This is the most important structural change affecting Canada since Stephen Harper became Prime Minister.

A more sensible way to analyze the F-35 issue

Filed under: Cancon, Economics, Military — Tags: , , , — Nicholas @ 09:15

In the National Post, Shaun Francis and John Kelleher offer an easier-to-understand method of analyzing the costs and benefits of the F-35 program:

Consider a car. Let’s say you’re considering buying a subcompact or an SUV, which you plan to hold onto for five years. A subcompact has a one-time purchase cost of $20,000 followed by $7,000 in annual, recurring costs on things like gas and maintenance. Your total costs over five years are therefore $55,000, or $11,000 average cost/year.

Meanwhile, the SUV has a one-time purchase cost of $25,000 and recurring costs of $7,500, leading to a five-year total cost of $62,500, or $12,500 average total cost/year.

To examine whether buying an SUV makes sense, you take the costs of the SUV and you subtract the costs of your next best alternative, the subcompact. Then you ask yourself, is it worth a premium of $1,500 per year to drive an SUV versus a subcompact?

From a decision point of view, it doesn’t make sense to get upset over the $62,500 total cost of the SUV. That’s not the pertinent figure here. You can’t walk to work. You need a car. So the pertinent question is the cost differential — in this example the $7,500 premium between your preferred choice and the next best option.

Canada’s F-35 decision should have been framed in a similar fashion by the Auditor General. The appropriate question? Do we want to pay a premium for the world’s best fighter jet, which will be cutting edge for decades to come, or can we make do with more reasonably priced planes that are bound to become obsolete sooner?

In the article they say “no one is questioning whether Canada needs fighter jets”, which is not actually true. Significant portions of the NDP, the Greens, and even some Liberals feel we should not be buying any military equipment that does not have a primarily humanitarian use. In their view, transport aircraft might be acceptable but combat aircraft would not. Trucks, yes, but tanks, no.

April 15, 2012

Is crony capitalism the way of the American future?

Filed under: Economics, Liberty, Politics, USA — Tags: , , , , , , — Nicholas @ 12:15

Sheldon Richman on the distressing similarities shared by the Republican and Democratic parties:

So the presidential campaign is shaping up as a contest between a Democrat who says we had a free market from 2001 through 2008 and a Republican who . . . agrees — he says “[w]e are only inches away from ceasing to be a free market economy.” You can’t cease to be something you never were.

Thus Barack Obama claims and Mitt Romney implicitly concedes that the free market 1) has existed and 2) therefore presumably created the housing and financial debacle. This bodes ill for advocates of liberty and voluntary exchange.

Notice what will happen if this framing is widely accepted: Genuinely freed markets won’t make the list of feasible options. That will leave us with mere variations on a statist theme, namely, corporatism. How will voters choose among them? Most of those who abhor “socialism” (however they define it) will rally round Republican corporatism because of the pro-market rhetoric, while most who abhor the cruel “free market” (“Look at the hardship it created!”) will rush to Democratic corporatism because of its anti-market rhetoric.

And the winner will be: Corporatism. (That is, the use of government force primarily to benefit the well-connected business elite.) The loser? The people, who would benefit from freedom and freed markets — markets void of privileges and arbitrary decrees. That’s what maximizes consumer and worker bargaining power and enhances general living standards.

Increasing taxes on the “1%” won’t close the gap — and might make it worse

Filed under: Cancon, Economics, Government — Tags: , , , — Nicholas @ 11:13

Joseph Brean in the National Post:

That the rich should contribute more than their current share to the common good is a proposal with popularity. From Paris and London to Nova Scotia and Alberta, “tax the rich” has become a dominant theme in budget debates and elections around the world.

In Ontario, for example, NDP leader Andrea Horwath’s proposal to create a new tax bracket for people who make more than half-a-million dollars a year, illustrates the persistent attraction of such schemes for governments in deficit.

“The issue really is one of perceived fairness,” said Robin Boadway, a taxation expert and professor of economics at Queen’s University, who notes that the income of the highest earners has been increasing much faster than the middle and lower ranks. Taxation, to a great degree, relies on the goodwill and trust of citizens, he said, and inequality in tax codes can violate that trust.

Governments acting like Robin Hood, however, have tended to provoke unforeseen problems, most recently in Britain, where an effort to tax the rich ended up — quite literally — costing the government deeply.

It always seems to be a surprise when people respond to incentives in creative ways … and this applies especially to creative ways to avoid paying higher taxes. People will adjust their behaviour to minimize their tax burden — both legally and not-as-legally. This is after all one of the reasons that there are so many tax provisions: the government wants to encourage certain kinds of behaviour (and so gives a tax credit) and discourage other kinds of behaviour (and so levies a specific tax on it). Flexibility occurs on both the tax-levying and tax-paying sides of the fence.

One of the complaints of middle-class taxpayers is that there are few mechanisms they can use to legally reduce their tax burden, while the wealthy have lots of ways to do this. This isn’t going to change if the government increases the top rate of tax — in fact it will encourage more creative use of the tax-lowering provisions of the law (and lawyers and accountants will benefit by helping their wealthy clients ot take advantage of those provisions).

April 13, 2012

Mapping 18th century shipping patterns

Filed under: Africa, Americas, Asia, Economics, Europe, History, Science — Tags: , , , , — Nicholas @ 09:06

An interesting post at the Guardian on tracing historical shipping patterns:


(Larger version at the original URL)

James Cheshire, of Spatial Analysis, has taken historical records of shipping routes between 1750 and 1800 and plotted them using modern mapping tools.

The first map, above, shows journeys made by British ships. Cross-Atlantic shipping lanes were among the busiest, but the number of vessels traveling to what was than called the East Indies — now India and South-East Asia — also stands out when compared to Dutch and Spanish records.

I was surprised to see how many trading voyages there were to and from the Hudson Strait — fur trade traffic, I assume.


(Larger version at the original URL)

This second map shows the same data for Dutch boats. The routes are closely matched to the British ones, although the number of journeys is noticeably smaller.

You can also see the scattering of journeys made by Dutch ships to Svalbard, off the North coast of the Norwegian mainland

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